MTM losses

Anticipation of errors has been hallmark of investing as preached by Munger - but may be when he meant errors, he meant permanent errors. There could be MTM losses if Price corrects due to 1) market related reasons 2) temporary change in underlying business aka quarterly fluctuations and 3) permanent downward change in business. I have not come across an article which lays out as to how a prudent investor/trader react to MTM situations.

Clearly, case 1 represents a buying opportunity and case 3 represents an exit opportunity; Case 2 is unique in the sense that it could happen with a general market slowdown (case 1) or a company specific issue. Several examples to demonstrate these 3 cases are Firstsource, ICICI Bank, Vaibhav Global, Rallis, IPCA labs, Bata India, KPIT and now perhaps Mindtree

Barring Vaibhav Global (Deterioration in Cash flows due to competitive reasons) and IPCA labs (Deterioration in fundamentals due to regulatory reasons), businesses have always come back and so have the prices. In rest of the cases, an investor, just like a trader, is faced with the question of exiting the weaker franchises/stocks to rotate into better ones, but how does one do this a bit more systematically?

The rise and fall of nations

Major regions of the world, including the Byzantine Empire and Europe before the Industrial Revolution, have gone through phases stretching hundreds of years with virtually no growth.

When a country like Japan, China, or India puts together a decade of strong growth, analysts should be looking not for reasons the streak will continue but for the moment when the cycle will turn

In general, however, if a country focuses on growth, development will follow.

In the United States, one of few countries where most lending is done through bonds and other credit market products rather than through banks, the credit markets started sending distress signals well before the onset of the last three recessions, in 1990, 2001, and 2007. The credit markets also send false signals on occasion, but for the most part they have been a fairly reliable bellwether.

Investment typically represents a much smaller share of the economy than consumption, often around 20 percent, but it is the most important indicator of change, because booms and busts in investment typically drive recessions and recoveries. In the United States, for example, investment is six times more volatile than consumption, and during the typical recession it contracts by more than 10 percent; while consumption doesn’t actually contract, its growth rate merely slows to about 1 percent.

Population growth is proportional to economic growth - Labor

Increase the retirement age - It is no longer valid

The essential question to ask about the impact of politics on the prospects for any economy is this one: Is the nation ready to back a reformer? To answer it, the first step is to figure out which position the nation occupies on the circle of life. Nations are most likely to change for the better when they are struggling to recover from a crisis.

The second step is to figure out whether the country has a political leader capable of rallying the popular will behind reform. In a crisis, the nation often demands a change in leadership, so look for the promising reformers among the newcomers: The crisis is likely to give them a strong mandate for change.

The European Commission president Jean-Claude Juncker captured the lament of technocrats everywhere when he remarked, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.

To check the popular impression of the increasingly stagnant and dominant elite, I did a quick scan of the 2010 billionaire list and found that the top ten Indian tycoons controlled wealth equal to 12 percent of GDP—compared to only 1 percent in China. Moreover, nine of India’s top ten were holdovers from 2006 compared to zero in China, and this stagnation was relatively new; on India’s 2006 list, only five billionaires had been holdovers from 2001. A cover story I wrote for Newsweek International in September 2010 argued that the rise of crony capitalism was “India’s fatal flaw,” and it was greeted with great skepticism in Delhi’s political circles. Top officials told me that corruption is normal when a young economy is taking off, citing the robber barons who ruled America in the nineteenth century. But as economic growth fell by almost half in the years that followed, many of the same officials came to acknowledge that an abnormally high level of corruption and inequality † was one of the main factors in the slowdown.

Paths to wealth - Phil Fisher

By taking advantage of normal stock market volatility—timing done rarely, but done
well—a single downturn can provide enough bounce to cover inflation for years. It is the closest he ever came to a justification for market timing.

What are you doing your competitors aren’t doing yet?

lengthy cycles when the level of all prices would tend to fall and the value of the dollar to rise correspondingly

William o neil

William J. O'Neil

William O'Neil is likely one of  the greatest stock traders of our time. O'Neil made a large amount of money while he was only in his twenties, enough to buy a seat on the New York Stock Exchange. Today, he runs a successful investment advisory company to big money firms, and is also the creator of the CAN SLIM growth investment strategy, which the American Association of Individual Investors named  the top performing investment strategy from 1998 to 2009.This non-profit organization tracked more than 50 different investing methods, over a 12 year time period. CANSLIM showed a total gain of 2,763% over the 12 years. The CAN SLIM method is explained in O'Neil's book "How to Make Money in Stocks".

Mr. O'Neil founded "Investor's Business Daily" to compete directly with "The Wall Street Journal", and he also discovered of the "cup with handle" chart pattern.

Those closest to O'Neil that have seen his private trading returns say that they are greater than Warren Buffett's or George Soros over the same time period. Here are some of the principles that lead to his results, and why he is considered a trading legend.

#1 He sells a stock he is holding after it has gone down 7% from his purchase price.

"I make it a rule to never lose more than 7 percent on any stock I buy. If a stock drops 7 percent below my purchase price, I will automatically sell it at the market – no second-guessing, no hesitation"

#2 One of the major keys to his profitable trading was only having small losses when he was wrong. 

"The whole secret to winning in the stock market is to lose the least amount possible when you're not right."

#3 William O'Neil studied historical chart patterns relentlessly and read thousands of trading books.

"90% of the people in the stock market, professionals and amateurs alike, simply haven't done enough homework."

#4 He invested in an industries leading stocks not its laggards and dogs.

"It seldom pays to invest in laggard stocks, even if they look tantalizingly cheap. Look for, and confine your purchases to, market leaders."

#5 O'Neil 's investing style lead to big winners and small losing trades.

"Investors cash in small, easy-to-take profits and hold their losers. This tactic is exactly the opposite of correct investment procedure. Investors will sell a stock with profit before they will sell one with a loss."

#6 He did not waste his time and money playing the short side in bull markets.

"Cardinal Rule #1 is to sell short only during what you believe is a developing bear market, not a bull market."

#7 Fundamentals told O'Neil what to buy and the chart told him when to buy.

"The number one market leader is not the largest company or the one with the most recognized brand name; it's the one with the best quarterly and annual earnings growth, return on equity, profit margins, sales growth, and price action."

#8 O'Neil knew exactly what he was doing in the markets. He had a trading plan, trading principles, and rules.

"Some investors have trouble making decisions to buy or sell. In other words, they vacillate and can't make up their minds. They are unsure because they really don't know what they are doing. They do not have a plan, a set of principles, or rules to guide them and, therefore, are uncertain of what they should be doing."

#9 O'Neil traded price action not his own opinions or of anyone else.

"Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable."

#10 He watched a stocks volume as part of his trading plan.

"The best way to measure a stock's supply and demand is by watching its daily trading volume. When a stock pulls back in price, you want to see volume dry up, indicating no significant selling pressure. When it rallies up in price, you want to see volume rise, which usually represents institutional buying."

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Article by Steve / Bull Market, Chart Reading, Trading Plan,Trading Psychology

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